This article discusses the rationale for various financial system-related functions and objectives to be ‘delegated’ to an independent agency, whether a central bank (as in the case of the Reserve Bank) or a separate supervisory authority. The delegation of these tasks marks a form of precommitment on the part of government to the long-run goal of financial stability. This pre-commitment helps reduce the risk of politicisation of policy making and the ‘time inconsistency’ problem – where government may understand the long-term benefits to society from financial stability, but may act in contrary ways over the short-term.

However, the decision-makers heading these agencies are unelected. To compensate for this and the potential creation of a ‘democratic deficit’, independent agencies must demonstrate that they contribute to better outcomes than would otherwise prevail if they were not independent, while enshrining a high degree of ‘procedural legitimacy’ based on robust accountability arrangements. In the financial policy sphere, the construction of robust accountability arrangements can be challenging. Financial system objectives such as ‘soundness’ and ‘efficiency’ are not easily amenable to quantification.